Morning Report APAC: Asia shares revive on oil pick-up
- Market expects Bank of England to cut interest rates to a record low 0.25%
- ADP Employment change showed that private payrolls increased 179k
- GBP trades trades at $1.3325, some distance from its low of $1.2798
- Asian stocks advance, as oil revival sets equities alight
- AUD strengthens. along with the South Korean won and Malaysian ringgit
By Saxo APAC Sales Trading
Economic Data of the Day (SGP Time – GMT + 8)
Speeches (SGP Time – GMT + 8)
- 0930: JPY - BOJ Deputy Governor Iwata speaks in Yokoham
- 1815: USD - Fed's Kaplan speaks in Shanghai
- 2130: GBP - Bank of England Governor Mark Carney gives press conference
- ADP Employment change showed that private payrolls increased 179,000 (expected 170,000), better than expected. Job creation was again drive by the service sector. Service providers added 185,000 workers, albeit down from the 203,000 hired in June.
- The US service economy remained on a solid expansionary path in July after a print of 51.4 in the PMI index.
- Chicago Federal Reserve Bank President Charles Evans said the US economy seems to be in relatively good shape and the Federal Open Market Committee could raise interest rates once this year.
- India's upper house approved the creation of a national sales tax, a decade after it was first proposed. The constitutional amendment now now moves on to the Prime Minister Modi-controlled lower house.
It then must be ratified by at least half of all states, a process projected conclude by the year's end. Prime Minister Narendra Modi now faces the tough part of his reform agenda: deregulating labor and land. That's likely to be contentious given the political interests of the rural masses.
India says that the GST can eventually boost economic growth by as much as 2 percentage points. The GST will subsume over a dozen state and federal levies to simplify commerce and create more of a single market.
- Indonesia widened its 2016 budget deficit estimate to 2.5% of GDP from 2.35% as energy and commodity prices drop, Finance Minister Sri Mulyani Indrawati said.
The government will need 17 trillion rupiah ($1.3 billion) in additional financing to bridge the gap, and will cut spending further.
The USD was well supported overnight against G10 and the market is now waiting for Nonfarm payrolls and the Bank of England rate decision today.
NZD is finding good offers above 0.7200 with no specific news. USDCAD came off below 1.3100 with the rally of oil. USDTRY moved 1% higher because of higher than expected inflation (1.16% MoM vs 0.6% exp and 8.79% YoY vs 8.16% exp).
Foreign exchange movements
At a level close to 100, we are seeing buying of topside in USDJPY still in the two months area for low deltas.
Bank of America analysts expect the Bank of England to cut rates but also to announce GBP 50bn of quantitative easing split between gilts and corporate bonds. The effect of that would be bullish for US Investment Grade Corp Bonds because:
- Central banks can meaningfully compress credit spreads when buying in illiquid corporate bond markets, driving even more sterling investors toward the US market.
- QE tends to lead to a shortage of bonds and U.S. companies are likely be happy to issue in GBP to fill the void.
- UK yankee issuers account for $272bn, or 4.5%, of US HG market value; would probably benefit most in US market from any BoE QE.
- Vale plans to issue bonds due August 2026 as a jump in iron-ore prices sent its borrowing costs tumbling. It's seeking to sell $1 billion of securities to yield 6.25% and will use the proceeds to pay off notes coming due next year.
- National Grid is auctioning off a 51% stake in its domestic gas network. A sale could value the assets at more than GBP 10 billion ($13.4 billion). A Canadian pension group and an Allianz consortium have shown interest, while China Investment and other Chinese investors may join groups looking to bid. First-round bids need to be submitted by late September.
- UBS sold $1 billion of the riskiest type of bank debt, the first sale in Europe since Brexit. The additional Tier 1 notes yield 7.125%, and are expected to be ranked BB+ by S&P.
- Global yields closed marginally lower overnight. US 10 year note yield fell 1 basis point to 1.54%.
- Focus will be on the Bank of England rate decision today. It is widely expected that that a rate cut decision will be made from 0.5% to 0.25%. Despite huge pressure from Brexit, poor economic data and anticipation for a cut last month, the BoE chose to hold its policy rate at 0.5% in the last meeting. Market is pricing in more than a 98% of a rate cut for today's meeting.
- Contrarian on the cutting of rate is looking at a heavier asset purchase instead of a cut in the policy rate because BoE will only be able to cut interests a couple of times before reaching negative rates and might likely to opt to keep more room for manoeuvre before switching to negative interest rates.
- JGB continue to be sold off since the announcement of the fiscal stimulus in Japan. The government may issue 100 billion yen of 40-year bonds to fund the expanded budget and Investors (mainly Pension Funds) have been selling bonds pushing yields from -0.30% to -0.06%)
US stocks rebounded to close near session highs as a rally in crude prices energised the oil sector.
- DJIA rose 0.2% while S&P 500 climbed 0.3%. Winners came from energy (+1.8%) and financials (+1%), while Utilities (-0.6%) and staples (-0.5%) struggled.
Wal-Mart Stores (-0.3%) is reportedly in talks to buy privately held online discount retailer Jet.com Inc. Pricing was not disclosed but Jet could be valued at up to $3bln in private markets.
Tesla fell 0.63% and 0.70% (after-hours) Despite falling short of Wall Street estimates for earnings and revenue, Tesla showed progress in increasing its production capabilities, which have long been an issue for the electric automaker.
European stocks edged higher, lifted by a rebound in beaten down banks. The Stoxx Europe 600 Bank index recouped 1.8%, its first gain in three sessions. Fiat Chrysler surged 8.2% on a report it could sell its parts-making unit Magneti Marelli to Samsung for over $3bn.
HSBC jumped 4.5% after it a surprise $2.5bln stock buy-back plan even as Q2 profit plunged 40%. Samsung Electronics is in advanced talks to buy some or all of a Fiat-owned autoparts maker, people familiar with the deal said.
The deal could be worth more than $3 billion, making it the South Korean company's biggest purchase abroad. Samsung is particularly interested in Magneti Marelli’s lighting and in-car entertainment operations to help it cut its dependence on smartphones. Fiat shares rose 9%.
- Gome Electrical (493 HK) cut to “fully valued” vs “hold” at DBS Vickers
- Great Wall Motor-H (2333 HK) raised to “buy” vs “neutral” at China Merchants
- Hang Seng Bank (11 HK) cut to “sell” vs “hold” at CICC
- Prada (1913 HK) cut to “underperform” at RBC
- SCB (2888) 1H16 adjusted pretax -46% YoY to US$994m, missed est US$1.12b. Impairment losses improved by more than1/3 to US$1.1b vs US1.7b year ago. No dividend was declared as compared to US14.4 cents interim dividend a year ago. STAN LN up as much as 9% last night, close +
- Tencent(700) China’s NDRC said to further evaluate Didi/Uber deal as completion of Didi/Uber deal would have very strong market impact (Reuters)
- Evergrande(3333) Jul contracted sales +205%YoY, 37.2% MoM to RMB43.01b
- Geely (175) auto car sales +64%YoY to 48,522units
- Fosun Intl(656) ‘s unti obtained approval to invest in RMB100m in Fosun United Health
- Gemdale Ppt(535) Jul contracted sales +44.4%YoY at RMB1.13b
- Sinopec (386) ’s decision to sell up to 50 percent of a natural gas pipeline unit could value the asset at as much as US$6b and help boost short-term profits
- New World China (917) will be withdrawn from listing starting from today with the completion of compulsory acquisition by New World Dev(17)
- Coal: Shanxi province aims to use credit default swap for credit enhancement of qualified local coal cos. in their financing (Shanxi Daily)
- Minmetals Land (230) won Yau Tong residential land at over HK$4b, far above the market estimates of HK$1.81-2.83b
- Liu Chong Hing (194) 1H16 NP +4%YoY to $213m, declared interim dividend HK$0.17.
- Mitsubishi (8058 JP): Raised to buy at Daiwa
- Mitsui Chemicals (4183 JP): Raised to outperform from neutral plus at Iwai Cosmo
- Mitsui & Co. (8031 JP): Raised to neutral at Macquarie
- Shionogi (4507 JP): Raised to outperform from neutral plus at Iwai Cosmo
- Zeon (4205 JP): Cut to hold at Toyo
- ANA Holdings (9202 JP): 1Q oper. profit -16% to 14.1b yen
- Asahi Diamond (6140 JP): 1Q oper. profit -39% to 826m yen
- Asahi Group (2502 JP): Raises full-year oper. profit forecast 2.7% to 140.7b yen vs analyst est. 140.5b yen; says strong yen to lower cost of Peroni-Grolsch buy
- Daicel (4202 JP): 1Q oper. profit +7.7% to 17.2b yen
- Daikyonishikawa (4246 JP): 1Q oper. profit -25% to 3.05b yen
- Fuji Kyuko (9010 JP): 1Q oper. profit +0.5% to 1.06b yen
- Fukuoka Financial (8354 JP): 1Q net income -14% to 14.5b yen
- Hitachi Zosen (7004 JP): 1Q oper. loss 2.37b yen vs 464m yen loss year ago
- Horiba (6856 JP): 1H oper. profit -29% to 7.78b yen
- KLab (3656 JP): Prelim. 1H oper. profit 51m yen vs co. forecast 370m yen loss
- Kubota (6326 JP): Cuts full-year oper. profit forecast 11% to 200b yen vs analyst est. 220.6b yen
- Meiji Holdings (2269 JP): 1Q oper. profit +31% y/y to 22b yen
- Mizuno (8022 JP): 1Q oper. profit -46% to 409m yen
- Nippon Chemi-Con (6997 JP): 1Q oper. profit -77% to 328m yen
- Nippon Shokubai (4114 JP): 1Q oper. profit -38% to 5.61b yen
- Okamoto Industries (5122 JP): 1Q oper. profit +56% to 3.03b yen; lifts 1H forecasts
- Olympus (7733 JP): Cuts full-year oper. profit forecast 14% to 77b yen vs est. 92.7b yen
- Sapporo Holdings (2501 JP): 1H oper. profit 3.05b yen vs 1.29b yen loss year ago
- Shinsei Bank (8303 JP): 1Q net income -64% to 8.19b yen
- Suzuki Motor (7269 JP): 1Q oper. profit +7.2% to 59.2b yen vs est. 49.9b yen
- Taiyo Yuden (6976 JP): 1Q oper. profit -59% to 2.07b yen
- Tokyo Ohka Kogyo (4186 JP): 1Q oper. profit -40% to 2.32b yen
- Tsubakimoto Chain (6371 JP): 1Q oper. profit -14% to 4.14b yen
- TV Tokyo (9413 JP): 1Q oper. profit +35% to 2.83b yen; doubles 1H profit forecasts
- Harvey Norman (HVN AU) cut to neutral vs overweight at JPMorgan
- Fortescue (FMG AU) raised to equalweight vs underweight at Morgan Stanley
- South32 (S32 AU) raised to overweight vs equalweight at Morgan Stanley
- Genworth Australia (GMA AU) cut to neutral vs buy at Goldman Sachs
- Suncorp (SUN AU) Full-year profit, est. A$1.08b
- Tabcorp (TAH AU) Full-year profit, est. A$161.2m
- Downer EDI (DOW AU) Full-year profit, est. A$167m
- BWP Trust (BWP AU) Full-year profit
Information sources: CIMB / Bloomberg
– Edited by Adam Courtenay
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